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Will IR35 reforms affect your Birkenhead business?

Having introduced reforms to tighten up IR35 for public sector companies during 2017, the government is now applying these to private sector ones. The new rules will come into force from April next year, so now is the time to prepare for them if you aren’t already.

Birkenhead is home to a thriving business scene, which is why enterprise hubs like the Woodside Business Park were created, so it will be easy to find an accountant in Birkenhead to provide information about the reforms.

What is IR35?

IR35 was introduced back in 2000 and it is tax law designed to close a loophole where contractors could set up a limited company and use it as a vehicle for receiving payment – defined as ‘disguised employment’. The reason for doing this is that the contractor could divide up the limited company ownership with family members to qualify for lower income tax levels. Using a limited company also meant the payments could be issued as dividends, reducing the national insurance to be paid. The introduction of IR35 saw this classified as tax avoidance.

The changes coming next year

IR35 was revised for companies and employees within the public sector – which includes fire and police authorities, the NHS, local council and government workers – three years ago. The changes coming next year will see these reforms apply to private sector companies and workers as wel,l and the main difference will be that the company hiring a contractor becomes responsible for determining whether that individual qualifies for IR35 or not, whereas before it was the responsibility of the contractor.

The businesses and individuals liable to be affected

If you run a business but hire freelance contractors, it is likely that you will be affected by these changes. Equally, if you are a freelancer who uses a limited company but who would be classified as an employee of the firm for which you are freelancing if it did not exist, you will be impacted by these reforms. On the other hand, if you are a sole trader business, the IR35 reforms will not apply to you.

There is a tool called Check Employment Status for Tax (CEST) on the HMRC website that can be used to check if you are liable.

The penalties for getting it wrong

HMRC has indicated that heavy fines will be levied on those who do not comply with the changes, but your Birkenhead accountant will help you avoid these.

Posted by Louise
July 2, 2019

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